News Corporation (NWSA) Earnings Call Transcript & Summary

Okay, everyone. We'll get started. Thanks for joining us. I'm John Hodulik, from the communications team here in Research, and I'm pleased to welcome Almar Latour, the CEO of Dow Jones and Publisher of The Wall Street Journal. Almar, thanks for being here.

Great to be here, John. I know we actually go back to a different time, covering telecoms as a reporter. Now we're here together. So great to be here.

Exactly. We used to chat 20 years ago covering WorldCom, the CLECs, all the exciting time in telecom.

Yes.

So we've got about 35 minutes for questions. I've got the iPad here. If anybody has any questions, you can register them with the app and I'll weave them into the conversation. So Almar, let's start with maybe if you could provide, just to frame things, sort of a brief overview of Dow Jones.

Okay. Good. Thank you, and great to be here, everyone. So we're in an era of increased complexity. Everything around us is changing, be it in technology or in geopolitics, et cetera. And this is exactly where Dow Jones comes in. We're a business news and information service provider. We help people make decisions in this era of complexity. And how do we do that? We serve people all day long. From the moment they wake up and through their workflow at their businesses, all the way to when they get back home again with our consumer services, which you know, The Wall Street Journal and Barron's but also B2B services. We sell subscriptions to consumers and to enterprises. We're now by and large a subscriptions company, a digital subscriptions company at that. Roughly 80% of our revenue is generated by subscriptions in one form or another. We're a company that is undergoing a lot of change and has undergone a lot of change in the past couple of years. Our profitability over the past 4 years, our profits have doubled. We are very optimistic about the future because the complexity that we see all around us, we provide answers and help people navigate that very, very difficult period we find ourselves in. And so that gives you a sense of what we do. We believe that everyone in business should come across Dow Jones' products and services and information multiple times a day. And so we believe there's a lot of headroom for growth, be it in consumer or B2B.

Got it. And to that aim, the company has made a number of acquisitions in the not-too-distant past. Can you go through sort of the key transactions and how they fit inside of Dow Jones?

Yes. So the framework for our acquisitions, and we hadn't done acquisitions for nearly 2 decades until a couple of years ago. The framework is we are operated through verticals, so vertical areas of focus, business news, retail investing and wealth, energy, risk and research. So those are a few. We deepen our verticals with acquisitions, and that's what we have done with IBD, which was one acquisition, which rounds out our retail investment portfolio, connects very, very nicely and deepens the tool set that we could offer with Barron's and MarketWatch. That's one. And then we added a vertical, Dow Jones Energy we call it, but there were 2 acquisitions involved and that's OPIS and CMA. Those acquisitions have gone exceptionally well over the past 1.5 years. They're fully integrated. We've accelerated the growth rate pre-acquisition of those companies to today, significantly by investing in them and we're also -- outside the borders of Dow Jones Energy and OPIS and CMA, we're learning a lot from having imported just an entrepreneurial spirit into Dow Jones. And so it's paying off in many different ways.

Got it. News Corp disclosed recently that the majority of Dow Jones' profitability is expected to come from B2B products this year. Can you discuss that transformation away from sort of the retail into the business?

Yes. We're at an inflection point really for Dow Jones where that profitability is generated primarily by premium B2B services. You see that driven by risk, and we'll talk about that if you want, Dow Jones Energy, but also just by across the board, whether it's within consumer or B2B, an emphasis on more premium services that's driven the margin profile up. This is where we see a lot of room for expansion down the road, both going deeper in verticals and adding verticals to our portfolio.

Let's -- if we can, we can sort of double-click down into that risk business. Obviously, I don't think there's a lot of similar businesses out there that get a lot of attention from The Street and I know it's one of the big growth drivers. So can you sort of give us a lay of the land in terms of what that business is and what's driving the growth? And maybe talk about sort of how much runway you have.

Yes. So first maybe start with the macro picture around that. So regulatory risk has increased around the world, and we expect that to increase even more as the world again, becomes more complex, as you see deglobalization then sanctions regimes are becoming more difficult to understand and are proliferating. You see many types of regulations impacting corporate decision-making. And so the corporates have to and financial institutions have to manage that risk. You know that from your own institution and everyone in this room knows that.

It's like on a monthly basis, we get these training modules we have to do, mostly about sanctions companies and countries and know your client, all that kind of stuff.

You have to understand, so know the companies, know your customers that you're doing business with. And this is where we come in. We have trusted sets of data and that trusted part is incredibly important to check which individuals, which entities you can do business with and not get sanctioned. And so I'll give you an example recently, this is a global business, as you might imagine. A customer recently reached out to our team in Southeast Asia, and they wanted to do business with an HR company in that region. Our researchers went to work, deployed our technology on our data sets, AI coming in pretty heavily there. And lo and behold, they discovered that the company that this customer wanted to do business with was actually a front for a human trafficking operation. And so that might sound exceptional, but we identify day in, day out, the risks with individuals, politically exposed individuals, financial crime, human trafficking and other sordid risks for companies and help them navigate that, help them avoid that. And the trusted part is so important because if your data is not to be trusted or if there are sort of false positives in there, that costs a lot of time and money for companies to navigate that because then you have to dedupe and that's really hard. So that's how we are exceptional.

How big is that market? And then I would also say -- ask how sort of -- how much penetration do you have and sort of is there -- is it a very competitive business?

So within our space, financial crime, we're roughly $250 million, we've been growing double digits for many, many, many quarters and we expect substantial growth to continue for the foreseeable future. That's both within the area in which we operate, so financial crime. But we're not just serving financial institutions. Increasingly, the needs of financial institutions when it comes to risk are replicated and mirrored by corporates in any industry. I just got back from Dubai from COP 28 where we met with a lot of risk clients and potential clients, probably about 150 people showed up for an event like this, and the risk they're navigating with terrorism and funding, navigating regulations, increasingly ESG and environmental regulations fall into these categories, which is where our risk and our energy businesses actually come together. And so we see a lot of headroom for growth. It's growing very strongly. It's a highly profitable business, and it fits so nicely with everything else that we do.

Right. Maybe talk about the energy business and within that, OPIS and Chemical Market Analytics. I mean can you just discuss how the integrated -- both of those transactions and how the integration is going?

Yes. So as I indicated earlier, so these were acquisitions that we made about 1.5 years ago, probably started seriously looking at that 2 years ago. And those integrations have gone incredibly well. The teams are fully part of Dow Jones. But what we're seeing is, a, the -- our investments into that vertical are paying off. We did that early on. We had a plan going in. We're executing against that probably better than we even had expected. The megatrends around us, so just everything that we see every day on oil prices, energy overall, the energy transition being the story of our lifetime, the demand is developing accordingly. And so demand for news services, data, analytics and then also our convening power, bringing people from that industry together, that's all coming to fruition in ways that meet our expectations and exceed our expectations. And so that's going incredibly well.

So both of these services, both the risk and compliance and what you're doing on the energy side, those are both -- I think you start off by saying 80% are sort -- of your revenues are subscription businesses. These fit into that category, right? How are the sort of these services, both on the risk and compliance and the energy side sort of sold to businesses?

Yes. So it's B2B. So our corporate sales team goes out and connects with procurement officers. There's different points of engagement. Sometimes for risk, it's within the compliance department, as you might imagine, but there are other entry points as well. And so we have a global sales team of about 250, 300 folks that is operating a, on a generalized basis, understanding just the full suite of everything that Dow Jones has to offer, but also highly specialized. And so we bring in experts. And often, John, this is about not selling a product but a solution. You plug into someone's workflow. We spend time on the ground. We even have, both within energy and within risk, some consulting functions that just make us really, really close to the client. And once we're embedded, we're there and we then expand from there. One thing that's happening, since you're asking about sales, is that we have increasingly an integrated sales approach. So one of the things that I just heard from risk managers in Dubai is that news is something that they start their day with. They set the agenda. And so we fit other parts of the portfolio, bring that to bear, when we meet with clients in the B2B space as well.

Right. Before we get into news, I mean, it seems like you're selling sort of risk control services, energy, data and other services. I mean are there other -- it would seem that there would be a number of other potential verticals that would sort of fully leverage sort of your expertise, your sales force and the rest of the infrastructure.

Yes, I love that question because it's exactly sort of how we got to this point and how we are navigating into the future in the sense that we operate in a very disciplined manner. In every super vertical that we have, in every area of concentration, we have news at the foundation. We have some data sets. We have -- then if you combine those 2 and put analysts on it, analytics, and then we have the convening power. And that's a replicable model. We've done that in a disciplined way with risk, but now with energy. And so you can, in fact, add more verticals. We can do that organically from The Wall Street Journal, and we'll talk about consumer shortly. From The Wall Street Journal, we have tremendous data -- wealth of data that shows us where there is potential, what the needs are, what people are asking for in terms of vertical information needs. And so that gives us a leading indicator as to where the next vertical organically might come from or opportunistically through M&A.

And how do you balance that? I mean are you guys -- it would seem like given the deals you guys have done and sort of the structure and sort of what you've set up here, that there would be opportunities inorganically through M&A to sort of fill in some of those silos and to create sort of a more sort of fulsome product set.

Well, it feels very natural to us to cover multiple industries. And now that we have that operating model, we've got great support, of course, from our parent company, News Corp, and I can't make any forward-looking statement to M&A, but we're looking opportunistically at the market.

Got it. Yes, turning to the B2C side and the news business. Can you talk about the sort of recent digital subscription growth that you've seen at The Wall Street Journal and Dow Jones? And I believe the growth rates have improved sort of in recent years and what the drivers for that are?

Yes. So the macro driver is where we started out, that we live an incredibly complex environment. Trusted news and data is very, very hard to come by, and that holds true for all of our consumer properties as well, Wall Street Journal or Barron's or MarketWatch. And so that's an underlying demand that's there. We have a new editor who is leaning in very much to the premium business user. We have a laser focus on that just to make sure that we're consistent across the entire portfolio from B2B all the way to B2C. We're emphasizing that user put -- their user experience above anything else. And we've been investing in select areas within The Wall Street Journal. We are undergoing change on the digital front. Obviously, UX matters a great deal. And so there's a lot of activity taking place there right now.

And has the growth been more domestic or more international?

So our outlook is global and one of our benefits is that we are a global company. It's one of the differentiating factors. Certainly, within news media, there are few news media operations that can operate on a global basis like we do. Most of our expansion thus far has come from our domestic market from the U.S. And we see upside internationally because a business user is a business user is a business user. And so we are emphasizing that in the time ahead. We have a new Chief Marketing Officer, who is really responsible for digital subscriptions, Sherry Weiss, who's emphasizing that. Emma Tucker, our Editor, is working very closely to make sure that our content offering and our pricing and our UX are all aligned for different markets as well.

And how important is bundling to the growth of the [ PDC ] side?

Yes. It's been one significant driver of growth. And so from point of view, bundling is listening to consumers' needs and giving them choice. So we started out small with combining Barron's and MarketWatch. We saw that, that got traction. Our kind of user has -- when offered a bronze, silver and gold package, clicks gold. These are people who are hungry for information, for deep information on all the areas that we cover. And so we're accommodating that need. And so you'll see us catering more closely to specific needs from the customer through bundles by having something more financially focused or maybe something more technology focused, et cetera. So bundling is something that has been very successful, and we expect that to be -- that to continue.

And there's a question on that I asked The New York Times yesterday. I mean how is the product evolving in a world of sort of social media and TikTok, when sort of younger people are getting their news more and more -- like less from the sort of traditional new services and more from these sort of new platforms?

Yes. So for one thing, I think as you have a generational shift and then the consumer have a shift with that, that has to be reflected in our personnel base. So a lot of the changes that you'll see will be driven by the generational shift that we're seeing within The Wall Street Journal and Dow Jones overall. So it's an always-on effort to make sure that we are focused on mobile, on vertical video, on audio and all the new ways in which or sometimes not so new ways that are accelerating in a younger demographic. So we're investing in that. We're -- through Apple News, we've gotten -- which is -- this is not really reflected in our subscription numbers, but we have had now access to a younger user base. Also, MarketWatch has just a much younger user base than is across the board for Dow Jones. And then IBD, so you asked earlier about some of our properties that we acquired. With that entrepreneurial spirit from them, we launched a youth-focused investor newsletter called MarketDiem and it hits a lot of marks. It's a paid-for product, which you have signed up the double-digit thousands by now in terms of users for a paid product and for that demographic, it's really good. Really remarkable with what we see. Even though that's a very young demographic and there's all kinds of assumptions that we make about the young demographics, they don't want to pay for stuff and such, but we actually see that more than 65% of the total revenue comes from derivative products that we've sold subsequently from that user base. So effectively, there are self-bundling products, and we're succeeding at upselling. So we're -- in short, we're very optimistic about reaching that base on their terms but also making sure that the information retains value on that journey.

In the most recent quarter, I think 70% of the digital circulation revenues and 87% of subscriptions were digital-only. Is there a point when going all digital makes sense for you guys?

Well, this is about consumer choice and/or user choice, right. We want to be there for everyone in any way in which they want to take us in, whether that's on O&O digital or through an API or through social or through print. And so for as long as people want that and there's the people who are religious about their taking in the journal that way or Barron's that way, that's available. Increasingly, that's taking on the behavior of a luxury product because it's something people seek out and is an experience for which they are willing to pay more.

I think we in my family, we get The Wall Street Journal electronically, we have a digital subscription, but then we get the weekend version. So it's there. We like the off-duty section, like the exchange section, all that stuff.

Yes. Well, thank you, first of all. And that's great. It's a great read. And so we know the user dynamic, you're not atypical, but there's still also plenty of people who want it on a daily basis. But for -- just for how we run the business, we're a digital business and we have a print outlet, right?

At the Investor Day in 2020, you spoke about doubling the sub base, which I think it was just below 4 million at the time. Is that still the goal? And sort of what are the sort of long-term view of it?

Yes. So we're on track with our goals. In fact, we're adjusting our goals because we're optimistic about how we're developing. And so we're sticking with the plan that we had at the time. That's now coming on 3 years ago. And so we're very excited about how our digital subscription base is developing.

Big topic of conversation, as you would imagine in any media conference, is the advertising backdrop. And can you give us an update on sort of what you're seeing? And are there any signs that there's some green shoots out there?

Yes. So when it comes to advertising, so you can talk about the past few quarters and not the quarter we're in or going forward. But our advertising -- digital advertising improved from Q4 -- or Q4 to Q1. Incidentally, Q1 across the board was the best quarter we've had since we were taken over by News Corp 15 years ago. So -- but advertising specifically, the sectors that are strong for us, B2B, technology we see -- we saw in the past quarter some strength coming back to that. And those are the sectors that we rely on.

That's great. How is -- this is another topic that's come up a couple of times, AI. How is Dow Jones sort of thinking about AI? Is it sort of a good guy or bad guy? And how could it sort of be used at this point? Obviously, it's very early days in your business processes.

Yes, it is early days, but it's an important time. There's 3 areas that we look at. One is IP, making sure that we secure the value of the information that we -- news and archives that we've painstakingly built up over the decades. So for that, as you know, and those of you, who follow News Corp, we have been in negotiations and talks with various players in tech with an eye on making sure that our -- the value of our content, the value of our news, of our proprietary databases is protected. So we want to have that as a continuous area of focus and secured at value. Two, workflow. So within workflow, we're already seeing, whether it's in a newsroom or for example, the research team that I just talked about in Southeast Asia, focusing on finding the financial crime and such. We are deploying generative AI and have been deploying sort of classic AI for a long time. And that will continue and that will intensify, whether that's translation or just helping reporters find information that is harder to come by or impossible to process just on your own. Then third, and this is perhaps the most exciting part, is creating products that really are demand-driven. So we hear from a lot of customers, I like what you're doing in risk or in energy. I want to have access to that. Do you have the capability to summarize and such. And so we have detailed plans to come out with generative AI based products. And so we'll announce those when they're coming out.

Got it. Dow Jones again posted record profits -- profit margins last year. So do you see -- given that, do you -- how do you expect things to trend going forward? Can you -- do you see potential for further margin expansion?

So the trend has been for us to focus on premium information, subscription-based, and that's driving our margin profile and has been driving our margin profile. And that -- we're not done with that. So that will continue. And that's -- as I indicated earlier, that's not just within just B2B. But within The Wall Street Journal, there are also quasi B2B services like the CEO counsel and such. And so there are -- like for every part of our portfolio, there are opportunities that are more premium-oriented higher-margin products, so that will set the trend in terms of our margin profile, I think. The other thing that's happening is that we are looking more aggressively at efficiency because there is so much change taking place on the -- all around us in the market and media and technology, et cetera, as we all know. And we want to make sure that we're optimizing every dollar, every resource. And so part of that will pay off in terms of margin as well, that efficiency drive that we've been on for the past year and will be ongoing for the next couple of years. And so those 2 engines will make sure that our margin profile will continue in a favorable direction, I think.

Great. We already touched on M&A previously, in talking about the sort of information services business. But just talk about the sort of M&A landscape. Do you -- think the company has been an acquisitive company, you talked about the acquisition -- the News Corp's acquisition of [ Austrical ] 15 years ago. I mean what is -- do you expect that sort of rate of M&A that we've seen more recently to continue? Are there a lot of sort of attractive targets out there? Or do you feel that we may have reached sort of a place where the assets are where you need them to be and the majority of the growth would be more organic going forward?

So we are opportunistic when it comes to M&A. We're always scanning the landscape. I think for each vertical, we have a deep understanding as to which parties would fit, which ones would not fit. I think we mainly look at this as categories. Going deeper in verticals is always of interest, whether it's organically or inorganically, adding verticals also organic or inorganic. That is -- adding verticals is an aspiration. And then we're always looking at is there something across the board that could help all of our businesses at once. And so that's the lens through which we look at organic growth but also inorganic growth.

Got it. And lastly, can you talk about the benefits that you're getting, that Dow Jones is getting as being part of News Corp versus sort of being a stand-alone entity?

Yes. Well, we have had some of our best years under the News Corp flag and we continue to perform incredibly well. We have great support from the News Corp team, great support of ownership. I think The Wall Street Journal wouldn't be where it is today without the support from News Corp. Those acquisitions and just the entrepreneurial forward-looking spirit is very much something that's part of News Corp, and we're deploying that throughout Dow Jones. And so there's a great symbiotic relationship we learned from our sister companies. Hopefully, we can help them as well. And so it's a great situation.

Great. Well, I think we'll leave it there. Thanks for joining us, Almar.

Okay. Good. Thank you so much, John. Thank you, everyone.